We’ve always been a big fan of Meredith Whitney… and not just because she’s agreed with everything we’ve said… but because she tells it the way it is.
And we’re happy to see that Meredith Whitney isn’t drink from the same Kool-Aid the banks are. Nope. She tells is the way it is, destroying the idea that the financials rally is real.
“They were overdone all the way into this rally. What happened was the government – I call this the great government momentum trade – the government enabled the banks to have better than expected, better than even the banks could organically deliver, first-quarter earnings. That looks like it could continue into the second-quarter and the third-quarter. The banks rallied from well below tangible book multiples to almost two times tangible book multiples… the underlying core earnings power of these banks is negligible,” she says.
Here she is with more.
Worse…This will not be the last time banks will need to raise capital. And she believes that bank earnings in 2010-2011 will be below consensus estimates.
As for us, we believe the second half of the financial disaster has already begun with weakening commercial real estate, and the start of Option ARM resets.
Stay tuned for more downside in financials… and if you’re interested in playing it, check out Options Trading Pit for more.